Bank heeds reforms in victory for Yeltsin

May 22, 1993|By Boston Globe

MOSCOW -- President Boris N. Yeltsin won a major political victory last night, as the Russian Central Bank agreed to stop resisting his free-market economic reforms.

According to the Interfax news service, the bank initialed an agreement to phase out credits for ailing industries, reduce tax subsidies and stop propping up the ruble in international currency auctions.

The agreement marks the latest and perhaps most significant consequence of Mr. Yeltsin's victory in last month's referendum, in which a majority of Russian voters gave him a vote of confidence and approved his economic policies.

Since the vote, many of Mr. Yeltsin's foes in Parliament have scrambled in confusion and toned down their opposition, for fear of becoming totally isolated politically. Now the Central Bank, one of the main obstacles to Mr. Yeltsin's reforms, seems to have capitulated, too.

The pact also ensures that Russia will get a $3 billion grant from the International Monetary Fund to help restructure the economy.

The document was drafted by Mr. Yeltsin's top free-market adviser, Finance Minister Boris Fyodorov, with the endorsement of the IMF. It will be signed soon, perhaps today.

Mr. Fyodorov and other economists favoring reform have long argued that the Central Bank's easy-money policy is responsible for Russia's skyrocketing inflation. He told Parliament earlier yesterday that it was no longer possible to bail industry out of debt "simply by issuing new money."

Mr. Yeltsin and the Central Bank director, Gennady Gerashchenko, have been at odds for nearly a year. Mr. Yeltsin and his team have tried to tighten the money supply and force industry to live or die in the marketplace.

Mr. Gerashchenko, who was appointed to his job by Mr. Yeltsin's anti-reform foes in the parliament, has kept the money flowing to factories, whether they were producing anything desirable or not.

The reformers assert that the transformation of Russia from socialism to capitalism was running fairly smoothly until late July, when Mr. Gerashchenko tripled the money supply to bail out 3 trillion rubles of debt -- at the time, worth about $19 billion -- that ailing industries had accumulated.

Until then, state figures indicate, inflation had been reduced to about 9 percent a month -- impressively low, given that decades of price controls had been lifted just seven months earlier.

After the bank's bailout, however, inflation tripled to 25 percent a month and has remained in that region ever since.